Trucking Industry Dealt a Blow: What You Should Know

The question regarding whether a worker is properly classified as an independent contractor or employee is fraught with controversy, legal risk and uncertainty.   A recent case illustrates the issue in the trucking world.

On June 30, 2022, the U.S. Supreme Court declined a petition for writ of certiorari filed by a group representing California’s trucking industry, California Trucking Association (“CTA”).  CTA’s petition sought to challenge a California worker classification law that will have a devastating impact on the trucking and transportation industries.  These industries are already in the midst of multiple, overlapping crises.

The high court denied CTA’s petition challenging the Ninth Circuit’s decision in California Trucking Association v. Bonta, 996 F.3d 644 (9th Cir. 2021).  That case focused on a 2019 California law known as California’s Assembly Bill 5, or “AB5,” which makes it more difficult for businesses to classify workers as independent contractors, as opposed to employees.

AB5 codified a test created by the California Supreme Court in Dynamex Operations West Inc. v. Superior Court, 416 P.3d 1 (2018), to determine whether workers are truly independent contractors. The three-pronged “ABC test” presumptively considers all workers to be employees, and it allows workers to be classified as independent contractors only if the hiring business demonstrates that the worker satisfies each of the following conditions: “(a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”  Id. at 34.

The trucking industry has long relied on an “owner-operator” model, which is dependent on independent contractors who own their trucks.  Under this industry model, it is difficult to satisfy the “B” prong of the ABC test because independent contractor drivers and the motor carrier are involved in the same business of transporting freight.

The Ninth Circuit held in Bonta that AB5 is a generally applicable labor law and is therefore not preempted by the Federal Aviation Administration Authorization Act (“F4A”).  F4A[1], which also applies to the trucking industry, prohibits states from regulating the prices, routes, and services offered by motor carriers.  The import of this decision, and the Supreme Court’s decision to let it stand, is that it will potentially open the door to further state regulation in this space, and it will limit the use and classification of truckers as independent contractors or owner-operators—thereby further increasing the cost of freight transport, which will be passed on to consumers.

This issue is crucial for all businesses.  There are valid financial and operational justifications for a business to use independent contractors.  On the other hand, government agencies and plaintiffs’ lawyers are eager to initiate claims against employers who are alleged to have misclassified their employees.  Companies who have misclassified their workers are often be subject to crippling wage and hour lawsuits, including collective actions, as well as tax liability for failing to withhold employment taxes .

By way of comparison to the “ABC” test, courts in the Fourth Circuit (VA, NC, SC, WV, MD) apply the six factor test originally identified in United States v. Silk, to determine if an individual is an employer or an independent contractor.  331 U.S. 704 (1947).  “These factors include: “(1) the degree of control that the putative employer[s] ha[ve] over the manner in which the work is performed; (2) the worker’s opportunities for profit or loss dependent on his managerial skill; (3) the worker’s investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the putative employer[s’] business.”  Hall v. DIRECTV, LLC, 846 F.3d 757, 774 (4th Cir. 2017) (quoting Silk, 331 U.S. at 304–05).  No single factor in the test is dispositive, and it is designed to capture “the economic realities of the relationship between the worker and the putative employer.”  Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 305 (4th Cir. 2006).

Employers in the Fourth Circuit are not governed by the ABC test at present, but still need to be mindful of how they classify employees.  Gentry Locke is monitoring these developments and can assist with independent contractor agreements and lobbying for transportation interests.

The case is California Trucking Association v. Bonta, U.S. Supreme Court, No. 21-194.

[1] 49 U.S.C. § 14501(c)(1).

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These articles are provided for general informational purposes only and are marketing publications of Gentry Locke. They do not constitute legal advice or a legal opinion on any specific facts or circumstances. You are urged to consult your own lawyer concerning your situation and specific legal questions you may have.